During intraday trading on Monday, November 11, shares of Asian Paints, the nation’s top paint and décor company, dropped 9.5% to ₹2,506 a share, the lowest level since April 2021. The company’s poor September quarter (Q2) earnings, which fell short of analysts’ forecasts in every way, were the cause of this decline.
Soft demand circumstances, rising material prices, and a downturn in the domestic ornamental and coatings market were the main causes of the reporting quarter’s poor performance, which had an effect on the company’s profitability. These difficulties have caused analysts to lower their target prices for the company.
While keeping its ‘Neutral’ rating, Japanese brokerage company Nomura reduced its target price for Asian Paints to ₹2,500 per share. It emphasized that the company’s Q2 performance was below expectations, with volumes falling by 0.5% year-over-year (YoY), trailing competitors that saw growth of about 3-4%. EBITDA and sales both experienced steep YoY declines of 28% and 5%, respectively.
Higher personnel expenses and a decline in gross profit margins (GPM) had a major effect on operating profit margins (OPM), which narrowed when compared to peers.
Morgan Stanley lowered its target price to ₹2,522 per share while maintaining its ‘underweight’ rating on the stock. The brokerage stated that prolonged rains, floods, and weak demand caused Q2 revenue and margins to fall short of projections.
It claimed that Asian Paints’ performance was worse than that of its competitors, with volume growth of -0.5%. With a target price of ₹2,100, Jefferies also kept its ‘Underperform’ rating on the company. The second quarter saw line-by-line misses across the profit and loss (P&L) lines, which the brokerage described as a severe miss.
Pre-tax earnings fell 31% year over year due to a slight volume decline and a dip in the EBITDA margin of more than 500 basis points. After the company’s major operating miss, JPMorgan downgraded Asian Paints to ‘Underweight’ and cut its target price from ₹2,800 to ₹2,400.
CLSA lowered the target price to ₹2,290 and kept its ‘Underperform’ rating, citing lower consumer sentiment than rivals as the reason for the sales growth lag.
Q2 earnings
Consolidated net profit for the September quarter went down 43.71% to ₹693.66 crore, according to the business. Owing mostly to price reductions in the previous year, revenue from operations fell 5.3% to ₹8,027.54 crore. During the same time the previous year, ₹8,478.57 crore was made.
The decorative business in India had a 6.7% loss in income and a 0.5% drop in volume. Q2 consumption was negatively impacted by a combination of poor consumer sentiment, ongoing rainfall during the quarter, and flooding in certain areas.
Operating-wise, EBITDA was ₹1,240 crore, a considerable drop from ₹1,716 crore in Q2 FY24. At 15%, margins also fell 500 basis points year over year.
“Margin front, soft demand conditions, product mix, and material price inflation affected margins in Q2. We expect margins to recover in the coming quarters on the back of anticipated softening in material prices coupled with price increases implemented in the last few months,” said Amit Syngle, Managing Director & CEO of Asian Paints Limited.
In a different document, Asian Paints stated that, for the fiscal year that ends on March 31, 2025, its board has authorized an interim dividend of ₹4.25 per equity share of the face value of Re 1 each.
